A good credit score is an invaluable asset in terms of financial health. In simpler terms, it acts as your safety net in the hours of need, owing to its many perks viz. lower interest rates, better cash back and hence, purchasing opportunities, and also better employment opportunities since your credit score also reflects your commitment to responsibilities.
In the light of its multifold benefits, here are a few tips to maintain a healthy credit score:
- Brush up your knowledge
The first step to doing anything right is to be well informed about the subject itself. So, make sure that you understand the difference between good and bad credit score along with the factors that influence it. For instance, while you do need to keep your payment history and habits in check, not all payments necessarily bend the curve in one direction. The key, like in any other case, is to find the balance, know what’s important and what isn’t, and manage your finances accordingly. Having said that, there are 5 pieces of puzzle, which if you get right, can help you make informed decisions and maintain a healthy credit score:
- Your Payment History
- Recent Credit
- Credit Age
- Credit Mix
- Level of Debt
In case any of these terminologies don’t make sense to you, it’s time you do some research.
- Don’t sit on your bills
Isn’t it liberating when you don’t have anything to worry about? For the same reason, make sure to pay your bills at time- be it your credit card payments, EMIs or general utility bills. This way your credit history will remain spot free, your credit report top-notch, and you won’t have to deal with any unnecessary penalties!
- Don’t collect a stack of cards
While having more than one credit card is a good option, also keep in mind that too much of anything is bad. In fact, every time you apply for a new card, you stand a chance of losing 10% of your credit score points. So, do not apply for a new credit card unless you absolutely have to.
- All the way is not the right way
While it can be tempting to make just one last purchase with the leftover limit, it is advisable to not spend more than 70% of your credit card balance. Using up more limit can negatively impact your credit score.
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- Manage your debts
Your credit history is an integration of all your debts, like loans, credit line lesser than 30%, late payments, penalties, everything. If you want to maintain a healthy credit score, the only way to go about it is to keep your debts in check.
So, here’s a valuable tip: Use only up to 70% of your credit card balance and keep your monthly repayment limit to no more than 25% of your income.
- Old credits are good for your score
When you close an old credit account, your corresponding history also gets erased. Now, since your credit score is largely dependent on your credit history, it is better to just keep your old accounts open.
- If you have a card, use it
Since your final credit score depends on up to 30% your credit history and your credit history depends on the usage, not using a credit card can negatively affect your score. Now, in case you one credit card, in particular, owing to its unique perks; what you can do is use that card for most of your shopping and limit other cards usage to once in every three to four months.
- Keep an eye on your credit report
You can do everything right and still end up having a bad credit score due to an unfortunate error, say, faulty credit limit reports or failure to update your loan payments or even mishap like credit card fraud or identity theft. The best way to protect yourself from becoming a victim is to keep checking your credit reports regularly throughout the year and report to the credit bureau if anything fishy appears.
- Too much curiosity can kill your balance
Again, watching your credit report is one thing and obsessing over it is another. Moreover, since credit bureau is already busy taking care of important issues, making too many inquiries can also have a negative impact on your credit score. So, make an inquiry only if it is absolutely necessary.
- Take calculated risks
If you are an entrepreneur or a serial investor, make sure you know what you are doing because if by any chance your venture fails and you go bankrupt, your credit score will also severely fall down. On top of that, it is hard to recover your credit score from such highly negative impact for up to 10 years.
Other than the above-mentioned tips, make sure to never lie on your credit card application. Keeping it honest and safe is the only way to keeping it healthy.